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Digital Single Market Strategy - Cross-Border Portability

The European Commission has announced the next phase of its Digital Single Market Strategy.

Following recent consultations on the AudioVisual Media Services and Cable and Satellite Directives – with reform proposals (including those on geo-blocking) due next year – and with the E-Commerce Inquiry continuing in the background, the Commission’s focus has for the time being shifted back to copyright reform.

Alongside its announcements on the need to tackle legal fragmentation in consumer contract law and low consumer trust when buying online from other countries, the Commission has published a draft regulation on cross-border portability. The Commission expects this to be a reality in 2017 and, once adopted, it will be directly applicable in all EU Member States.

In brief, the draft regulation would mean that providers of portable online content services are obliged to enable subscribers who are temporarily present in a member state to access and use the service.

There are clearly a number of nuanced and interesting elements to the draft regulation which merit detailed discussion (please speak to your usual DLA contact to arrange this as you wish). For the time being, a few initial thoughts from our global team are as follows:

Key Questions

For providers of online content services, and for licensors of online content, the key issue is clearly: which services fall within the ambit of the regulation, and what is the effect?

1. Which services are within the ambit of the draft regulation?

The draft regulation applies to “online content services”. This concept appears broad enough to capture not only audiovisual, but also music, e-book and other media services and applies to linear and on-demand delivery systems. However, it is restricted only to those services which are provided:

on a portable basis within a member state, without being limited to a specific location;

to consumers who have a contract for availability of the service in that member state (“subscribers”); and

in return for payment of money (which would include indirect payment as part of bundle of services) or where there is no payment but the consumer’s member state of habitual residence is verified.

A number of immediate questions arise as a result of this:

What amounts to the necessary contract for the provision of the service? Would a one-off payment for purchase of a connected television with built-in online music or content service satisfy the requirement?

What is meant by “habitual residence” (more on that below), and what happens if the free service verifies the consumer’s then current location and not habitual residence?

2. Who must comply with the Regulations?

This is expressed as a positive obligation on the service provider.

Note that not only are contractual provisions contrary to the regulatory position unenforceable, but it also appears that a portable online content service cannot choose to remain, for example, a Germany-only service, but must alter its systems and processes to allow for this so-called “cross-border portability”.

3. What must providers of “online content services” do?

The Regulations require that access and use be “enabled” for subscribers who are temporarily present in a member state.

A number of issues arise:

There are no legislative “quality” standards for the required cross-border portable service, and so it would appear to allow for different (HD/non-HD, full screen/non-full screen) versions of the same service to be available, depending on whether access is in the “home” member state or elsewhere.

The concept of “temporarily present” is obviously critical. The regulation goes no further than describing this as being present in a member state other than that in which the subscriber is habitually resident. Therefore, there are no express limits, timing or otherwise which could be a material concern for certain rights holders.

The Regulations envisage that content licensors can require service providers to verify that the service is being provided in conformity with the Regulations, and not for example providing broader access to their content.

4. How does this effect clearance issues?

As envisaged, the Commission appears to have side-stepped any additional clearance issues by confirming that provision, access and use of cross-border portable services will be deemed to take place only in the “home” member state. Therefore no changes to copyright licensing models are needed, with the onus shifting instead to the content licensing community to think creatively about how to value this newly enforced cross-border functionality.

5. What are the next steps?

Once adopted (which would be 6 months following publication in the Official Journal of the European Union), the regulation will apply to providers of relevant online content services on a go-forward basis. However, it will also have material retrospective effect in that it will bite on contracts concluded and rights acquired before that date if they impact on the provision, access or use of such services.

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